For now, Pentagon plays it safe on compensation reform

Nov. 3, 2013 - 10:11AM
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The Pentagon is playing its cards close to the vest on the issue of military retirement and compensation reform.

On Friday night the Defense Department offered up — as required by law — its official recommendation to the congressional commission created earlier this year to tackle the complex and controversial issues of military retirement and compensation reform.

But the recommendation offered no new ideas or detailed suggestions.

“They punted,” said Mike Hayden, director of government relations for the Military Officers Association of America.

The three-page letter from Deputy Defense Secretary Ashton Carter recycles a few budget-cutting proposals that were floated earlier this year — limiting troops’ annual pay raises, increasing Tricare fees, etc — but makes virtually no mention of the hot-button issue of military retirement.

The letter frankly acknowledges that fact. “This letter has focused on military pay and benefits other than retirement,” it states. “Our staff also has expertise on military retirement. Although we have not made any specific retirement proposals, we would be glad to discuss our thoughts on the military retirement system informally with the Commission.”

Personnel costs are coming under increasing pressure and scrutiny as many military experts say generous pay raises and benefits expansions since 9/11 have sent manpower costs soaring and could soon eat into funds needed for training and weapons modernization.

Retirement costs are a big portion of that, but the issue is deeply controversial. Most proposals in the past involve delaying pension payments until a traditional retirement age rather than today’s practice of offering them immediately upon retirement, when most troops are only in their 40s.

In 2011, a Pentagon advisory group proposed turning military retirement into a 401(k)-style plan for troops, but that idea was widely criticized and soon rejected by Pentagon leaders.

President Obama has specifically said the commission should plan to grandfather all current troops under today’s retirement system, so changes would likely affect only tomorrow’s recruits.

The push to find some cost savings through pension reform was gaining steam on Capitol Hill earlier this year, prompting the creation of the latest commission, whose nine members are a mix of former military and congressional officials, supported by nearly 40 full-time staffers.

The Military Compensation and Retirement Modernization Commission is expected to provide a detailed proposal that Congress may vote on next year. The law creating the commission required the Defense Department to submit a formal recommendation.

The letter said the Defense Department will propose additional pay and benefits changes in February along with the Defense Departments annual budget request to Congress. The commission is required to finalize its work by May 2014.

Many military personnel experts were expecting the Pentagon to seize the opportunity to shape the debate about retirement reform and provide some fresh ideas.

“I was expecting a more detailed proposal ... at least giving some guidance to the commission as to what the military thought should be reformed. I think that was the intent of the law,” said Todd Harrison, a defense budget expert with the Center for Strategic and Budgetary Assessments. “It looks like they took a pass.”

Pentagon leaders may be hoping to avoid the political firestorm that is likely to engulf any debate about military compensation. The vagueness of the recommendation could further reduce the chances that any real change will come to the military retirement and compensation system, because any final proposal the commission unveils will lack implicit endorsement from the institutional military.

From the view of the Pentagon’s long-term planners, the decision to avoid a detailed proposal for a new, money-saving retirement system may be a problem.

Rapidly rising personnel costs are often cited as a main factor in DoD’s budget problems, and saving money is the implicit goal of retirement reform. So sticking with the status quo will make long-term budget projections even grimmer and raise the likelihood that the Pentagon will have to make big cuts in force structure and weapons programs.

Yet from the shorter view of Washington politics, the decision to avoid a detailed proposal is a safe, logical move. The White House, which ultimately signs off on politically sensitive Pentagon decisions, is bogged down with other pressing matters, including an ongoing battle over the sequestration of defense funding and the task of winding down the war in Afghanistan.

From that view, advocating sizable changes in the military pay and benefits package would probably benefit the military over a 10- or 20-year timeline, but such changes would not carry much near-term payoff for the Pentagon.

“Is now the time to completely upset the apple cart on retirement reform? I just don’t know if there’s enough political will to make that happen,” Hayden said.

Hayden and others at MOAA have largely opposed changing the current retirement system, which they believe underpins military readiness and retention.

The absence of a public position on retirement reform may also reflect some internal problems within DoD’s personnel directorate, which has seen high turnover in recent years.

The current acting undersecretary for personnel and readiness, Jessica Wright, is the third person to hold that job in less than three years.

Harrison said he believes that turnover and turmoil “has certainly contributed to DoD’s lack of innovation in this area. There is just not a lot of innovative thinking coming out of the department when it comes to compensation reform.”